The ECB’s participation in the corporate bond market through its QE did have a profound impact on the differential in spreads between HY and IG markets.

As the chart shows, we have been at record tights between the two asset classes (159bp). This year, the underperformance in the high yield market leaves us now at a differential of 255bp. The decompression from the tights has been severe but through September we saw high yield markets outperform by a small margin allowing for a moderate compression again.

There is a continued need from investors for yield amid low policy and market rates. There is also some renewed confidence in the HY market (read demand for new supply) as pricing has been pushed back to more palatable levels. The global economy looks a little more Goldilocks-like although the trade wars might add to some weakness and a skew to the downside.

So there’s a little more to think of, of late. But we have been tightening at a decent clip, bolstered no doubt by a little bit of renewed vigour in equities and other risk assets. The US/China trade spat will determine where we go from here.

MiFID II Compliant?

Full access to the strategy notes & data that you need - Direct to your email inbox